Disclaimer: This article was written by EquityMultiple and edited by the Millionacres team. The survey research represented in the article was conducted by EquityMultiple. The opinions reflected in this article are entirely of EquityMultiple.
The real estate crowdfunding ecosystem has evolved rapidly in the past decade, following the JOBS Act, the landmark legislation that opened the door for investing platforms to offer passive, fractional real estate investments to accredited individuals. The young industry was born into the longest period of economic growth in the nation’s history, following the credit crunch and investor trepidation of the post-Great Recession years. Between 2015 and 2020, the industry matured rapidly, with a handful of platforms emerging as market leaders and crossing the $100M assets-under-management milepost. Skeptics wondered whether the industry was a top-of-the-market mirage and if the model would prove unsustainable if macroeconomic conditions took a turn for the worse.
The outbreak of a global pandemic has presented the real estate crowdfunding industry a trial by fire. While the economic realities of the past year have challenged real estate crowdfunding platforms, the industry appears to be on solid footing. Many self-directed investors now seek greater diversification and exposure to illiquid assets as we enter a recovery phase that may be characterized by greater volatility, inflation, and elusive yield in a low-interest rate environment. This trend is evident in the transaction volumes of leading real estate platforms in Q4 of 2020 and Q1 of 2021, following the mid-2020 nadir of commercial real estate markets. This whitepaper also shows, through survey data, that accredited investors remain enthusiastic about the types of CRE assets offered through online real estate investing platforms.
Methodology: this survey, conducted in March, 2021, aggregates the preferences and perspectives of hundreds of accredited investors across the nation who have participated in the real estate crowdfunding space.
- Investors are more intent on investing in real estate going forward than they were prior to the pandemic.
- Among commercial real estate asset classes, investors are overwhelmingly focused on multifamily, last-mile industrial, and niche asset classes like self-storage, indicating a preference for recession-resistant assets.
- Real estate crowdfunding is now overwhelmingly the preferred channel for real estate investing among this cohort of self-directed investors.
What investors want from real estate crowdfunding platforms
Payment priority vs. upside
The majority of investors surveyed had unchanged attitudes toward the degree of payment priority (downside protection) and upside potential of real estate crowdfunding investments: 66% of investors stated the same demand for payment priority pre- and post-pandemic, and 75% of investors stated the same demand for upside potential pre- and post-pandemic.
30% of investors surveyed stated that payment priority is now more important going forward, as compared with only 4% who stated payment priority is now less important to them.
18% of investors surveyed stated that upside potential is now more important going forward, as compared with only 8% who stated that upside potential is now less important to them.
What about weighting payment priority versus upside potential? The stated relative preference of investors breaks down as follows:
- Before the pandemic:
- 42% said upside potential was more important than payment priority.
- 32% said upside potential and payment priority were of equal importance.
- 26% said payment priority was more important than upside potential.
- Presently and going forward:
- 37% say upside potential is more important than payment priority.
- 33% say upside potential and payment priority are equally important.
- 30% say payment priority is more important than upside potential.
In sum, the advent of COVID-19 has not dramatically shifted preference among accredited investors with respect to risk tolerance and appetite for upside. However, these results show a clear shift toward demand for payment priority. This trend has been corroborated anecdotally from multiple investors in the past several months, including a Utah-based investor with over $400k invested on EquityMultiple: "The pandemic hasn’t really impacted my risk tolerance or strategy, but if anything I’m a bit more inclined to look at a debt or preferred equity investment that offers some downside protection."
Which types of real estate investment matter now?
We asked investors to rank their preference among the following property types going forward, in a post-pandemic world. The options:
- Industrial (including warehouses, fulfillment centers, and last-mile)
- Niche property types (e.g. data centers, and self-storage)
- Any property type with a strong sponsor and compelling market fundamentals
- Retail (anchored by essential goods and services)
The data revealed an overwhelming preference for multifamily assets, scoring over 25% higher on a weighted-preference score basis than industrial, the next most-preferred property type. Nearly 60% of respondents ranked multifamily first among these options.
This stands to reason: Multifamily has been a preferred asset class of savvy investors throughout market cycles and particularly during times of volatility. Multifamily has outperformed other assets within and outside of CRE during prior recessions, owing to the essential nature of the asset. In this particular moment, multifamily may be a particularly stable class; while traditional office and retail are hampered by clear alternatives in remote work and ecommerce, respectively, the majority of multifamily tenants have no such alternative. Many multifamily markets across the U.S. still benefit from the tailwinds that characterized the pre-pandemic years: historically low rates of home ownership, diversifying economies across Sunbelt metros, and widespread shortfall of market-rate housing for the millennial workforce. While the specifics of investment thesis and market are as critical as ever, multifamily remains a broadly appealing asset class for self-directed real estate investors.
Industrial and other niche property types (such as data center and self-storage) round out the top three CRE asset class preferences. These results also dovetail with a logical, trend-backed thesis for the pandemic and recovery. E-commerce continues to capture market share, remote work will capture a greater share of the workforce, and niche property types and models will emerge to meet shifts in demand.
We further asked investors to select any niche property types that are of particular interest going forward. top four, all of which are now in focus for more than half of surveyed investors:
What do investors seek from real estate investing platforms?
We asked investors to rank the following factors in terms of importance in their decision to invest, and continue to invest with, any particular real estate investing platform:
- Due diligence and underwriting measures
- Deal flow
- Historical track record
- Reporting (asset performance and tax documents)
- Customer service
We expect all of these factors to be crucially important to investors. Still, results showed a clear priority. Due diligence and underwriting measures stood above other factors, scoring 30% higher than the next highest factor by weighted importance score. Nearly half (48.4%) of investors ranked due diligence and underwriting measures as the most critical function of a real estate investing platform.
Deal flow and historical track record ranked #2 and #3. Taken together, this can be interpreted to show that the largest group of self-directed investors is looking for a consistent and varied flow of investment offerings that are highly diligenced.
Customer service ranked last in weighted preference score, with only 1.3% of respondents ranking this factor as the most important criterion in selecting a real estate investing platform. These results are a significant departure from the results of an accredited investor preference survey we conducted in mid-2018. At that time, "transparency and detail with respect to investment opportunities" ranked as the number one factor. "Attentive customer service" ranked in the middle of the pack, outranking such factors as "diversity of investment opportunities" and "volume of opportunities."
It seems self-directed investors have grown more comfortable with the real estate crowdfunding paradigm and perhaps more self-sufficient in choosing and investing in deals that fit their strategy. Despite these results, we do know that investor services are critical for many investors. Said one EquityMultiple investor recently, "The end-to-end customer experience is really the thing for me. I need to feel like I can engage a real person to talk about my portfolio."
How are investors approaching real estate in terms of portfolio allocation?
Survey results indicated conclusively that self-directed accredited investors in aggregate are planning to allocate more to real estate crowdfunding -- or platform-based, passive real estate investing -- in the coming 12 months than they did over the past 12 months (which roughly coincide with the pandemic). However, a plurality stated they will invest roughly the same in the coming 12 months:
Do you plan on investing more, less, or the same via real estate crowdfunding or online CRE investing platforms in the coming 12 months?
- 43.8% — roughly the same.
- 38.7% — I plan on allocating more toward this type of investment over the coming 12 months.
- 17.6% — I plan on allocating less toward this type of investment over the coming 12 months versus the past year.
The survey results also indicate a general growth in exposure to real estate: 29% of investors indicated a desire to invest between $100k-$250k in real estate per year in 2021 and going forward (the most-represented target allocation going forward). Only 23% of respondents indicated they invested between $100k and $250k in 2020, and only 19% indicated that they allocated within this tranche in 2019 and in years prior to the pandemic.
The group also stated a preference for real estate crowdfunding/online CRE investment platforms over other forms of real estate investing, with a weighted preference score 30% higher than the next most-preferred channel for real estate investing: direct ownership.
Taken together, we can infer that investors now want to, and are able to, allocate substantially more to real estate via online platforms.
Contemporary investment structures -- what else is top of mind?
We surveyed this group of self-directed accredited investors as to their level of interest in three timely types of real estate investment:
- Opportunity funds/Qualified Opportunity Zone investments: With a potential refresh of the legislation and revision of qualifying census tracts, QOZ investments are very much on EquityMultiple’s radar.
- Distressed assets: As owners of distressed assets begin to transact and overall transaction volume increases, we expect to see the types of distressed asset opportunities that can potentially deliver outsized returns following an asset repricing shakeup.
- Private real estate funds: In this environment, we see increased benefit from private commercial real estate funds, with varying strategies, that allow for built-in diversification while avoiding the potential volatility of public REITs.
Among these three types of CRE investment, responses spanned the interest spectrum. Over 10% of respondents for each of the three types rated the investment strategy as a "10," or extremely appealing. Of these three types of investment, Private Real Estate Funds scored highest, with 55% of respondents rating this type of CRE investment a 7 through 10, or moderately to extremely appealing.
Following another round of stimulus legislation, and amid a rapid vaccine rollout, self-directed accredited investors appear optimistic about the future of private real estate investing and its place in their portfolios.
The answers to survey questions collectively tell a story of self-directed accredited investors growing more comfortable with the real estate crowdfunding paradigm and looking for greater variety and volume of deals to facilitate diversification. Investors appear to be focused on those commercial real estate asset classes that tend to offer a recession-resistant asset class.
Appetite for downside protection vs. upside potential has not changed dramatically pre- and post-pandemic, according to these results. In both quantitative survey data and qualitative feedback, we observe that investment objectives and risk tolerance vary widely among investors -- with the desire for greater diversification the one true constant.
About this Survey
This survey was conducted on a sample size of hundreds of self-directed accredited investors across the country by EquityMultiple. EquityMultiple is a commercial real estate investment and technology firm that provides accredited investors access to professionally managed, private real estate transactions across property types and risk profiles. EquityMultiple brings a streamlined real estate investing experience to the accredited investor through next-generation technology and personalized investor services. To date, EquityMultiple’s investors have participated in over $3 billion in commercial real estate transactions through its online investing platform.